I. Introduction macroeconomic theorists have devoted considerable attention to designing optimum rules for government policy. The arguments for why governments should set policy in price of rules are well known. However, until recently, there has been very little starchy analysis devoted to asking how macroeconomists policy (regime) prescriptions underside be adopted in a way which is credible. This seems quite important, since the slick for imposing rules on the government is often based on the view that governments are constantly tempted to deviate from socially-optimum behavior. From the time-consistency literature, we know that plane a government concerned solely with maximizing the public assistance of the representative individual whitethorn be tempted to defect from the optimal precommitment rule, whenever there are externalities).1 The rule that would be optimal if the government could perfectly precommit may be quite different from the optimal implementable rule. Hence it is also important to ask what kind of institutions can be designed to help implement better rules. The single-valued function of this note is to exposit some recent work aimed at dealing with credibility problems in policy design.
To limit the background of the paper, we will focus on financial policy. Three institutional devices for implementing monetary policy rules will be considered. The first method acting is to put the rule in place via a essential amendment. A second, less drastic, approach is to structure institutions in much(prenominal) a way as to mitigate credibility problems. This head teacher agent approach is predicated on the assumption that society has legislative devices for creating an independent monetary authority and giving it autonomy on at least a short-term basis. If unanticipated monetary policy has only short-term effects, then the ability to name a sequence of short-term commitments concerning money growth may be quite useful. In...If you want to get a mount essay, order it on our website: Ordercustompaper.com
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